Merkel looks solid as German employment climbs

Commentary: Germans will overlook a lot, if jobs are plentiful

LONDON (MarketWatch) — One of the most unexpected declarations of 2012 was the proclamation by British Prime Minister David Cameron that Britain had to be more like the Germans.

Earlier in December he urged his compatriots to copy Germany’s approach to skills and training for industry and business as a way of maintaining high employment levels in a tough competitive world.

In 2013 we will hear more Cameron-style entreaties to adopt a “Germanic approach to skills” — and more praise for the German “jobs miracle.”

Despite Europe-wide economic gloom and signs that the recession in the troubled southern half of the continent could be spreading to the Federal Republic, German companies are still searching for well-trained engineers, mechanics and other skilled staff. The Berlin government’s annual economic report in mid-January is expected to predict a further rise in official employment to beyond 29 million and stable unemployment despite a fall in the overall growth rate.

Reuters

German Chancellor Angela Merkel

All this spells good news for Chancellor Angela Merkel as she prepares for the September elections. Swings in German politics are decided not by absolute levels of economic activity, but by year-on-year fluctuations. Stability is a characteristic to prize above all others.

Among the electorate, the positive picture for jobs is likely to overshadow qualms about the amount of cash and loan guarantees the Germans need to transfer to crisis-hit southern Europe.

Merkel remains vulnerable to any economic flare-up or loss of political confidence in Spain, Greece or Italy, as well as to signs that German inflation could pick up to well beyond 2%.

This is despite the widespread view among European economists and policy makers that higher price levels in Germany would be a sign that the continent’s biggest economy is taking full part in necessary Europe-wide economic rebalancing.

Worries about inflation are one strong reason why the German Bundesbank, fresh from 2012 skirmishing with other members of the Eurosystem over central-bank purchases of peripheral government bonds, will set its face against any further reduction in the European Central Bank policy interest rates.

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Panagiotios Triantafyllopoulos was a graphic designer in Athens. But now, the 54-year-old is literally back where he started, living with his elderly mother in the house where he grew up. Gordon Fairclough reports from Aristomenis, Greece.

Unemployment data showing the German economy is more or less at full employment strengthen the Bundesbank’s hand in ECB bargaining — but emphasize the two-speed nature of the European economy. The scale of the turnround has been remarkable.

Thanks to a combination of more flexible labor market practices brought in by former German Chancellor Gerhard Schröder, as well as the success of large and small German companies in building up further export share all over the world, Germany has by far the best employment record of major world economies.

It is the only large nation where unemployment, based on the OECD’s harmonized data, fell in 2011 compared with pre-crisis levels in 2007 — from 8.4% to 6%, a fall of nearly 30%. During this time, based on OECD figures, unemployment rose threefold in Ireland, doubled in the U.S., Spain and Greece, rose 50% in the U.K., 25% in Canada, 20% in Japan and 15% in France.

Next year, the OECD predicts German gross domestic product growth will tail off to 0.6% from this year’s less-than-overwhelming 0.9%.

But, on the basis of non-harmonized figures, the OECD is forecasting only a small rise in the German unemployment rate to 5.5% from 5.3% in 2012 — still only half the level in 2005 when Schröder lost power, and hardly enough to make dent in overall German economic confidence.

Small wonder that, at the start of an election year, Merkel is looking even more her trademark self: unspectacular but implacably solid.

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